Girsanov, Numeraires, and All That

Patrick S. Hagan,Andew Lesniewski (Bernard M. Baruch College, City University of New York)

Girsanov, Numeraires, and All That
Format
Paperback
Publisher
Cambridge University Press
Country
United Kingdom
Published
31 December 2022
Pages
75
ISBN
9781009339285

Girsanov, Numeraires, and All That

Patrick S. Hagan,Andew Lesniewski (Bernard M. Baruch College, City University of New York)

In this Element the authors review the technique of the change of numeraire in the martingale approach to option pricing. Their intention is to present a reader friendly explanation of the technique itself, and illustrate how it is applied in various fields of quantitative finance as the basis for building option valuation models. They start with an informal review of Girsanov’s theorem, followed by a brief summary of the basic concepts of the arbitrage free pricing, and the technique of change of numeraire. This is followed by a number of applications of the change of numeraire technique including interest rate models, FX quanto adjustments, credit risk modeling, mortgage backed securities, and CMS rates.

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